Economic Thought History, Philosophy, and Methodology

Reassessing Marshall’s Producers’ Surplus: a Case for Protectionism

Daniel Linotte

Abstract

The rationale for liberal economic policies refers inter alia to the so-called producer and consumer surpluses, namely welfare concepts which were proposed by Alfred Marshall in his seminal work Principles of Economics, first published in 1890. In the case of trade policy, relying on surpluses and referring to the ‘small country case’, it is recommended to remove tariff barriers imposed on the imports of commodities because it should increase welfare and, in theory at least, the losers of such a trade policy orientation can be compensated with the use of adequate transfers from winners.

Despite extensive use, the concept of surpluses still raises key questions that may alter the case for free trade. Thus, from a purely semantic perspective, the concept of producer, as presented in Marshall’s work, seems to be broader than the concept which is proposed in the dominant economic discourse; in other words, workers should also be seen as producers.

Assuming that the workers are considered as producers, their wage rents must be taken into account when discussing the impacts of trade liberalisation; in addition, the welfare costs of unemployment caused by the opening of national economies should be included – as a result, the case for free trade weakens considerably, it could even vanish.